Thanks for the feedback folks. I thought I was the only one. I'm using the oem Canon 7.4V 1390mAh BP-511A batteries that came with my 40D and my 40D accessory kit (BG-E2N+case+battery deal from Henry's). Both batteries are tried & tested and perform fine without the grip and only have this issue when 1 battery is used in the grip.

I've been testing the same 2 batteries but BOTH are in the grip right now. At 400shots the battery meter went from "full" to "medium/low". Now, I'm at 800shots and the "low flashing" battery has not occured yet. In theory, I should get at least 2000shots before it completely dies since I get 1000shots with one battery without the grip. Still gotta test more with both batteries in the grip at once.